Wednesday, August 15, 2007

What's the revenue potential of Facebook applications?

There are 2,872 applications in the Facebook application directory today... and counting. I was speaking with my friend Scott Rafer yesterday at the DEMO alumni shtick down in Palo Alto. His new gig Lookery is trying to become the ad network for FB apps.

So I was wondering. What is the actual revenue potential if you could place an ad on every third party application page approximately two months after Facebook launches the application platform.

Say that the average CPM for a FB app is inching up to $0.30. Its a bit lower but we'll be generous and let Rafer convince us that he can get us there soon. How may page views per day do all the applications combined generate today? Lets say its 100million. Here's the math:
  • 10 million FB users use one or more third-party applications every day.
  • Every user has on average 10 page views per application session. (Only the canvas pages count since that's the only place you can add external ads.)
  • Math = 100 million page views per day.
  • I'm assuming that every page view has an ad opportunity AND that there is enough inventory to fill the space... these assumptions cannot be supported today, but we're talking "potential" here.
At $0.30 CPM that's $30,000 in revenue potential per day, $1m per month, $12m annualized.

What's going to change? Improved targeting and new ad formats will help boost CPMs. Usage will continue to rise so there is huge growth potential in page inventory. No doubt that there is growth potential.

I could be off by orders of magnitude regarding today's numbers and probably am. But even with order of magnitude corrections, we've got a ways to go before there is an eco-system that supports real businesses here.

What am I missing?

5 comments:

rafer said...

Your numbers are bizarrely low. Lookery is already paying $.24 eCPM across the network and I haven't finished my remnant sales deals or come close to finishing decent targeting yet. The network-wide eCPMs should be close to a buck before December 1, 2007.

Plus, there's hundreds of millions of app pages shown a day --- and school's not even in session. We racked up just over $1k for publishers today (GMT). There's no we we represent 3% of today's app publisher earnings. More like .03% when you include Slide and Rockyou.

Hans Peter Brondmo said...

Not sure I see your argument as diverging hugely from mine. Say the number is 5x what I propose - 500m page views / day. (I'd he hard pressed to believe that, but I hope I'm wrong.) Then lets say you get to $1 eCPMs in December. And now discount the usable inventory... say by 50%? So we're at a 7.5 x my estimate. Not quite an order of magnitude.

I'm not trying to argue against the opportunity... believe me, I want it to exist. Just trying to size it.

rafer said...

There's already around a half billion canvas pages a day now -- and the apps are nowhere near their potential depth, particularly with what I expect future versions of the Platform to allow.

Facebook's apps will be pulling user time from Microsoft Office and similar places. that's going to turn into single billions of dollars of user engagement. It will of course replace tens of billions of dollars of current engagement. Revenue compression is how we all make money.

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